There are numerous options available to save your money but out of all the options the thing that will impact how much you can earn is the interest rate. Selecting a high-yield savings account is one of the best ways to save up for a rainy day and to also focus on earning more money than you can with a traditional savings account.
Traditional Savings Account
When you open a savings account with a traditional bank you are often stuck with a very small interest rate. The average interest rate for a traditional savings account is 0.25%. With such a low interest rate, it makes it difficult for you to achieve your savings goals as you have a hard time earning interest after you invest your money. A traditional savings account is nice for a rainy day fund as they offer you quick access and flexibility to the account but as far as earning interest on your money, these accounts fail miserably. Most checking accounts will offer a free savings account to you as well, making it easy for you to open and to maintain the account.
High-Yield Savings Account
Although a traditional savings account does have some perks, you can easily increase your net savings and meet your investment goals by opening a high-yield savings account. A high-yield savings account has a very competitive interest rate compared to traditional savings accounts, usually starting above 1%. Depending upon your situation you may be eligible for a higher interest rate but you need to meet these criteria:
- Significant initial deposit amount (Usually $10,000 or more)
- Large daily balance
- Limited transactions from the account
Your existing bank may offer you a high-yield savings account if you have been a valued customer to them and you have held a large balance in your accounts.
Open a High-Yield Savings Account
One of the first things you need to do is to research the interest rates on high-yield savings accounts. The accounts with the highest interest rates may have other stipulations placed on them such as fees or a minimum balance that you will not be able to maintain. Reading the fine print will help you to understand just what you are agreeing to when you open a high-yield savings account.
Why Choose Online Accounts
If you want to find the best interest rate on the high-yield savings account, you have to look online. Your local bank is not going to be able to offer you high interest rates but these online banks can provide you with higher interest rates based upon their customers and investing strategy. In the past the savings rates were up at 5% to 6% where now the best you will see is between 1% and 2%. Even though the interest amount is not huge, you will still be able to earn a lot more with an online savings account than you will by choosing one from your local bank. As you seek out the best online savings account, always consider these 2 points:
- Fee structure. Will you be charged for withdrawing the money early? Do you have fees for monthly account access? How many transfers can you make each month before you are charged a fee?
- Interest rate. While the interest rate is subject to change, you need to understand how it is calculated. This will help you meet your savings goals as you focus on adding more money before the end of the month if the interest is calculated on the final balance or it will help you to see why you need to deposit money sooner if the interest is calculated on the average monthly amount.
